Is CoastFI a good retirement strategy?
THE STACK #51Imagine fully funding your retirement before you turn 30 and never having to worry about retirement for another 35 years. Sounds like a dream, right? This is a retirement strategy called Coast-Financial Independence (CoastFI).
CoastFI gained popularity in the mid-2010s as part of the broader FIRE (Financial Independence, Retire Early) movement. Traditional FIRE requires aggressive savings and extreme frugality to retire early, which isn’t appealing to everyone. So, people started creating different variations of Financial Independence that offered more flexibility and balance between financial goals and lifestyle, leading to the rise of CoastFI.
Although CoastFI offers more lifestyle flexibility while securing a financial future, it's important to approach it cautiously. Today's newsletter will discuss the pros and cons to help you decide if it's the right retirement strategy for you.
THE STACK
What is CoastFI?
CoastFI is a financial independence strategy where individuals aim to save enough early in their working years so that, with no additional contributions, their retirement savings will grow on their own to fund their retirement.
The key idea is that after reaching a certain savings threshold, individuals can "coast" toward retirement at the traditional retirement age of 65 without needing to save aggressively anymore.
Pros of CoastFI
Work-Life Balance
Once you hit your CoastFI number, you no longer need to save aggressively for retirement. This gives you the freedom to:
Reduce work hours.
Transition into lower-paying but more fulfilling jobs.
Pursue creative, entrepreneurial, or passion projects.
Take extended breaks or sabbaticals without worrying about retirement savings.
Enjoy Life Earlier
Instead of waiting until retirement to enjoy life, CoastFI lets you enjoy things like travel, hobbies, or spending more time with family while you’re still working.
Free up Cash Flow
Once you hit your CoastFI goal, you no longer have to contribute to your retirement. This frees up a significant portion of your income in your higher income-earning years, which can go towards fulfilling other big goals such as:
Purchasing your dream home
Starting a business
Contribute Less to Retirement
Since CoastFI focuses on saving a significant portion early, your investments grow on their own over time. You don't need to add more, and your money will still grow thanks to compound interest, which does the heavy lifting.
Live Comfortably
CoastFI doesn’t require extreme budgeting or cutting back on every non-essential expense, allowing for a more comfortable lifestyle while still securing a financially stable future.
Cons of CoastFI
High Initial Savings
CoastFI depends on reaching a "magic number" early in life, where your investments will compound to cover your retirement. This requires aggressive savings in your early working years, which might not be feasible for most people who typically start out with lower incomes and might not be able to save a significant portion of their income.
Requires a Strong Early Start
CoastFi's strategy for growing your investments relies on giving them time in the market. To make the most of this approach, it's important to reach your CoastFI target early in life, ideally in your 20s or early 30s. This will give your investments 30 to 40 years to grow. Hitting this savings goal might be challenging for individuals who start saving later in life, have student loan debt, or initially earn lower incomes.
Market Volatility Could Impact Growth
CoastFI assumes that investments will grow steadily over time. However, markets can be volatile, and recessions, inflation, or economic downturns could reduce the projected growth of your retirement savings. If your portfolio underperforms, you might need to save more later on to catch up.
Unplanned Expenses May Derail Plans
If you experience major life changes—such as a medical emergency, job loss, or needing to support family members—that require you to dip into your retirement accounts early, this could derail your CoastFI plans because CoastFI requires uninterrupted compounding growth. In order to still hit your retirement goal, you will need to put back way more than you withdrew from your retirement account.
Longevity Risk
With CoastFI, your savings are based on projections that might not account for living longer than expected. If you live well into your 90s or beyond, you may need to return to work or cut back on your standard of living late in life if your savings run out.
Need for Careful Financial Planning
Successfully achieving CoastFI requires meticulous early-stage planning, including:
Calculating the right savings rate and target number.
Selecting the appropriate investment vehicles that will allow your portfolio to grow optimally.
Continuing to manage and rebalance your portfolio to ensure growth over time.
Lifestyle Inflation
Even though CoastFI gives you more flexibility with spending, it requires discipline to avoid lifestyle inflation. Because most people plan for their CoastFI at an early age, they cannot accurately predict what their lifestyle will look like as they get older. If you start spending significantly more on luxuries, you may find it harder to maintain your CoastFI plan when you retire, and you might run out of money sooner than you expected.
Who is CoasFI ideal for?
Young professionals who can save aggressively early in their careers.
If you have a lump sum through a windfall, inheritance, sale of your home or business.
Those who seek balance between financial independence and an enjoyable life.
People who want to reduce work hours but don’t mind continuing to work in some capacity to cover living expenses.
Those who prefer flexibility and don't want to commit to extreme early retirement or aggressive frugality.
CoastFI offers a great way to enjoy life while still preparing for the future. It gives you more freedom and less stress, but you need to save a lot early on and stay disciplined. It’s perfect for those who want to work on their own terms and not wait until they’re older to enjoy their life, but it’s important to plan carefully to avoid problems down the road.
THE TOOL
CoastFI calculator
When planning for CoastFI, it’s important to plan your numbers accurately. Use this CoastFI calculator to determine your CoastFI number.
THE ACCOUNTABILITY
Will you be using the CoasFI strategy? Calculate your number, and let me know if you're considering this. Who knows, you might already be CoastFI! If so, let me know too.
THE COURAGE
THE KNOWLEDGE
Financial Independence
Financial independence means having enough savings, investments, or income streams to cover your living expenses without needing to work for money. When you're financially independent, you have the freedom to choose how and if you want to work because you aren't reliant on a paycheck to meet your needs.
Compound Interest
Compound interest is when you earn interest not only on the money you save or invest but also on the interest you've already earned. It’s like a snowball effect—over time, your money grows faster because you're earning interest on a bigger amount as it keeps adding up. The longer your money is invested, the more it grows!
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